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Credit Card Applications » News » Other » Amex Business Hit by DOJ's Lawsuit

Amex Business Hit by DOJ's Lawsuit

October 21, 2010
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American Express Co., the credit card giant could witness its business being hit massively by an antitrust lawsuit filed by the Justice department. This could leave the credit card behemoth with not many options apart from fighting against the government itself, although analysts feel the legal battle which is expected to last several years could weigh down on the stock price of the company for a long time to come. The company, which might still win the legal battle, is tight lipped over questions on what would be the course of action if it loses the case. Equity research analysts are also finding it hard to figure out what will be the impact of a government victory in this scenario.

According to analysts, the DOJ lawsuit is an important turning point and there might not be a quick resolution in the issue, which is likely to last several years. It is being considered as a game changer given that the business of Amex is dependent on rewards and wealthy card spenders and the lawsuit could force them to compete on price which is a real cause for concern.

Earlier, American Express, Visa Inc. and MasterCard were all sued by the Justice Department on Monday on allegations that their dealings with merchants violate the antitrust laws. Mastercard and Visa have settled immediately agreeing to change the rules to let merchants offer rebates on whether customers use various cards or cash. However, Amex has taken a different route altogether by choosing to challenge the suit instead. The case revolves around the fee that Amex, Mastercard and Visa charge merchants who use the card payment networks of these companies. In what is known as discount or interchange fee, the three companies along with banks have collected in access of 35 billion dollars in the form of such fees.

Currently Amex charges about 2.56 dollars from the merchants for every 100 dollars spent by the customers. Its rivals include Discover Financial Services, Visa and MasterCard al charge less than 2%. The difference is because American Express also spends a lot to persuade the richer clients to use its credit cards through attractive reward programs. The trade off is that merchants get access to richer Amex customers who spend a lot at the stores. Amex provides a lot of other services too, according to the card company which helps the merchants grow their business too.

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